Lynne, you are a wonderful writer! I haven’t seen such beautiful prose describe our grid conditions since Gretchen Bakke’s treatise a decade ago.
I just covered in my class (https://ESE.lehigh.edu) the work of Tesla and Edison but also of Insull the unsung hero for his commoditization of electricity. It is the reason why electric power and the lack of it separates prosperity and poverty even today. Your proposal to re-examine the future grid for which parts needed to be regulated and which ones thrown out for competition is very good. There are some ticklish areas: GFM vs GFL Inverters for one.
Lynne, doesn’t the regulation you describe require knowledge on the part of regulators that they cannot have, per Hayek? And if that is “necessary” because the regulated entity is a monopoly, doesn’t that perpetuate a monopoly that might otherwise lose its monopoly power as conditions change?
Hi Jane, nice to hear from you. I focus on your question a lot, because of course everyone has epistemic-cognitive constraints regardless of their roles (consumers, producers, regulators, etc.). Indeed, I've been arguing for over two decades that the regulated monopoly footprint should shrink, because new generation technologies have made wholesale markets competitive and digitalization has made retail markets competitive. Technological change has reduced transaction costs, reducing the economic reasons why vertical integration emerged in the first place 140 years ago. And in many places in the US and elsewhere the regulated footprint has been shrinking, so that's progress.
But the combination of persistent economies of scale in the wires and the network effects of a wires network means that the emergence of robust rivalry in the network is less likely. Add to that the political economy of regulation, that the incumbents lobby forcefully to maintain their status quo business model. That means that the starting point for dynamic moves to markets is from, as Adam Thierer would say, an industry born in captivity.
At its heart my argument applies Mike Munger's directionalist-destinationist theory of change. Based on economic theory and the institutional economics of technological change, the destination is more organization and economic activity through market processes, but acting as if we can just leap from the status quo to that destination is a recipe for failure. Better to be directionalist and inspire incremental moves that point in that direction, that compound each other, and over time culminate in a substantive move toward markets and constraint on regulation.
That, ma'am, is why you should quarantine the monopoly. Competing power lines running on opposite side of the street, or railroads running in pairs, or even triples (which I can't find right now, but there's a spot in NY where three railroads ran side by side) isn't a good use of resources, not even to discover prices.
Russ, Lubbock Texas has two sets of wires in almost every alley in town (though the two competing utilities started undergrounding wires in the 1960s for most new neighborhoods, and now they’re both owned by the municipality and since 2010 only one set is placed into the newest neighborhoods). The dual competition era lasted about 93 years and rates were as low as just about anywhere.
In principle two sets of wires should have been too costly—standard utility economics tells us so—but in practice competition apparently brought other savings to allow low, competitive prices.
Wow, awesome! Not exactly side by side, but the Erie Railroad, Delaware Lackawanna & Western, and the Lehigh Valley ran within a half mile of each other in Elmira, NY. Other cities had a pair of parallels.
The global race for artificial intelligence and the inability of the U.S. electricity sector to keep pace have state policymakers scratching their heads. Some respond by restricting data centers’ use of local grids; others put existing customers and taxpayers on the hook for investments to accommodate the new demand. The electricity sector is in a state of crisis.
New Hampshire recently approved an elegant solution: Let anyone build. In August Gov. Kelly Ayotte signed HB 672, which minimizes red tape for electricity providers that don’t connect to the existing grid, thus bringing more competition, speed and innovation to the state. In the spirit of reducing bureaucracy, the bill itself fits neatly on one page.
Off-grid electricity providers in New Hampshire will no longer be subject to public-utility regulation. This means they are free to develop projects, operate or enter into commercial agreements without going hat in hand to state bureaucrats.
How does one include the affected soft bodies needing reliability, in some cases to not perish. And the effects on our ecosystems that are now giving us some severe “learning”. Your writing to share with the layperson is truly appreciated . We should include so much more of this in the general education of the public so it doesn’t all get decided for us.
Lynne, you are a wonderful writer! I haven’t seen such beautiful prose describe our grid conditions since Gretchen Bakke’s treatise a decade ago.
I just covered in my class (https://ESE.lehigh.edu) the work of Tesla and Edison but also of Insull the unsung hero for his commoditization of electricity. It is the reason why electric power and the lack of it separates prosperity and poverty even today. Your proposal to re-examine the future grid for which parts needed to be regulated and which ones thrown out for competition is very good. There are some ticklish areas: GFM vs GFL Inverters for one.
I will forward your Podcast to my students.
Thank you, Rudy! I'm glad to hear that your engineering students are being exposed to economics principles.
I wasn't a power jock, so GFM and GFL are new acronyms to me. This explains them:
https://www.reddit.com/r/PowerSystemsEE/comments/1ext46w/grid_forming_and_grid_following_inverter/
Lynne, doesn’t the regulation you describe require knowledge on the part of regulators that they cannot have, per Hayek? And if that is “necessary” because the regulated entity is a monopoly, doesn’t that perpetuate a monopoly that might otherwise lose its monopoly power as conditions change?
Hi Jane, nice to hear from you. I focus on your question a lot, because of course everyone has epistemic-cognitive constraints regardless of their roles (consumers, producers, regulators, etc.). Indeed, I've been arguing for over two decades that the regulated monopoly footprint should shrink, because new generation technologies have made wholesale markets competitive and digitalization has made retail markets competitive. Technological change has reduced transaction costs, reducing the economic reasons why vertical integration emerged in the first place 140 years ago. And in many places in the US and elsewhere the regulated footprint has been shrinking, so that's progress.
But the combination of persistent economies of scale in the wires and the network effects of a wires network means that the emergence of robust rivalry in the network is less likely. Add to that the political economy of regulation, that the incumbents lobby forcefully to maintain their status quo business model. That means that the starting point for dynamic moves to markets is from, as Adam Thierer would say, an industry born in captivity.
At its heart my argument applies Mike Munger's directionalist-destinationist theory of change. Based on economic theory and the institutional economics of technological change, the destination is more organization and economic activity through market processes, but acting as if we can just leap from the status quo to that destination is a recipe for failure. Better to be directionalist and inspire incremental moves that point in that direction, that compound each other, and over time culminate in a substantive move toward markets and constraint on regulation.
"constraint on regulation". Unfortunately, the government which can regulate public goods is itself a public good.
Thanks, Lynne. I appreciate your taking the time to explain your views!
That, ma'am, is why you should quarantine the monopoly. Competing power lines running on opposite side of the street, or railroads running in pairs, or even triples (which I can't find right now, but there's a spot in NY where three railroads ran side by side) isn't a good use of resources, not even to discover prices.
Russ, Lubbock Texas has two sets of wires in almost every alley in town (though the two competing utilities started undergrounding wires in the 1960s for most new neighborhoods, and now they’re both owned by the municipality and since 2010 only one set is placed into the newest neighborhoods). The dual competition era lasted about 93 years and rates were as low as just about anywhere.
In principle two sets of wires should have been too costly—standard utility economics tells us so—but in practice competition apparently brought other savings to allow low, competitive prices.
Wow, awesome! Not exactly side by side, but the Erie Railroad, Delaware Lackawanna & Western, and the Lehigh Valley ran within a half mile of each other in Elmira, NY. Other cities had a pair of parallels.
New Hampshire is going to release energy providers from regulation if they don't connect to the grid.
https://www.wsj.com/opinion/new-hampshire-sparks-a-revolution-in-electricity-supply-dab10a8d
The global race for artificial intelligence and the inability of the U.S. electricity sector to keep pace have state policymakers scratching their heads. Some respond by restricting data centers’ use of local grids; others put existing customers and taxpayers on the hook for investments to accommodate the new demand. The electricity sector is in a state of crisis.
New Hampshire recently approved an elegant solution: Let anyone build. In August Gov. Kelly Ayotte signed HB 672, which minimizes red tape for electricity providers that don’t connect to the existing grid, thus bringing more competition, speed and innovation to the state. In the spirit of reducing bureaucracy, the bill itself fits neatly on one page.
Off-grid electricity providers in New Hampshire will no longer be subject to public-utility regulation. This means they are free to develop projects, operate or enter into commercial agreements without going hat in hand to state bureaucrats.
How does one include the affected soft bodies needing reliability, in some cases to not perish. And the effects on our ecosystems that are now giving us some severe “learning”. Your writing to share with the layperson is truly appreciated . We should include so much more of this in the general education of the public so it doesn’t all get decided for us.
Ecosystems giving us severe "learning"? Such as? Weather extremes? Not happening.
Oh you are so cute